2021 (8) TMI 787 - AT - Income Tax

Tribunal upholds CIT(A) order, rejecting revenue's appeal & adding Rs. 1,94,31,358 to sundry creditors disallowed.

The Tribunal upheld the CIT(A)'s order, dismissing the revenue's appeal and the assessee's cross objections. The addition of Rs. 1,94,31,358/- relating to ... Addition of sundry creditors - outstanding creditors - HELD THAT:- The sundry creditors represent the expenditure incurred for purchases and to make the disallowance of expenditure the issue is be dealt with u/s 37(1) in the year in which it was incurred, but not to be added in the subsequent year. AO did not make any enquiries to disprove the genuineness of outstanding creditors to invoke the section 41(1) of the act. It was also accepted fact that in the earlier year, assessment was completed u/s 143(3) and accepted the genuineness of purchases or as well as the outstanding creditors. As having accepted the genuineness of the sundry creditors in the earlier year merely because the assessee could not furnish some details, the AO cannot make addition of opening sundry creditors. It was also stated in the assessment order that due to HudHud cyclone, the business was badly effected. Merely because, the assessee had entered into agreement for sale, the AO cannot presume that the sundry creditors should not continue unless tangible evidence is brought on record to disprove the genuineness of the outstanding sundry creditors. In this regard, the assessee had already submitted the balance sheet. The assessee explained that it did not receive the sale consideration by the time the survey was conducted and the sundry creditors were not paid by that time, thus the transaction stands explained. Similar issue was considered by the coordinate bench in Tum Nath Shaw. v.Assistant Commissioner of Income Tax, Circle- 2, Burdwan, .[2019 (2) TMI 783 - ITAT KOLKATA] and decided the issue against the revenue and in favour of the assessee. AO did not make any enquiries or bring any evidence to prove that the outstanding creditors are bogus or the assessee has made the payments outside the books of accounts in the assessment year under consideration. The assessee has shown the liability in the balance sheet and stated to have paid the creditors subsequently. Therefore, in the absence of any evidence to disprove the genuineness of the outstanding creditors or to controvert the submission of the assessee, there is no reason to make the addition, hence, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue. Issues Involved:1. Condonation of Delay2. Addition of Rs. 1,94,31,358/- relating to sundry creditorsDetailed Analysis:Condonation of Delay:The revenue filed an appeal with a delay of 34 days against the order of the Commissioner of Income Tax (Appeals) [CIT(A)]-11, Hyderabad. The delay was attributed to administrative reasons. After hearing both sides, the delay was condoned, and the appeal was admitted. The assessee filed cross objections supporting the order of the CIT(A).Addition of Rs. 1,94,31,358/- Relating to Sundry Creditors:The primary issue in the appeal was the addition of Rs. 1,94,31,358/- made by the Assessing Officer (AO) as unproved sundry creditors. The assessee, engaged in poultry farming, had admitted additional income during a survey conducted under section 133A on 30.11.2015. The AO observed that the assessee had outstanding creditors amounting to Rs. 3,33,88,175/- as of 31.03.2015, out of which Rs. 1,39,56,817/- was admitted as additional income during the survey. Since the business was closed and the assessee could not furnish details of payments for the remaining outstanding creditors of Rs. 1,94,31,358/-, the AO made the addition.CIT(A) Findings:The CIT(A) found that the assessment for the year ending 31.03.2014 (A.Y. 2014-15) was made under scrutiny, and the AO had accepted the sundry creditors in the assessment proceedings of the earlier year. The CIT(A) concluded that there was no reason to suspect the genuineness of the sundry creditors since they were established in the scrutiny proceedings of the preceding year. The CIT(A) also noted that the AO did not bring any material on record to show that the opening sundry creditors were not genuine. Consequently, the CIT(A) allowed the appeal of the assessee, holding that no addition was warranted.Revenue's Appeal:The revenue argued that the assessee was unable to discharge its liability during the survey and surrendered certain outstanding creditors as additional income. The revenue contended that the CIT(A) deleted the addition without verifying the genuineness and creditworthiness of the sundry creditors. The revenue requested to set aside the CIT(A)'s order and allow the appeal.Assessee's Defense:The assessee argued that the sundry creditors were trade creditors for purchases made by the assessee and were outstanding as of the end of the earlier year (31.03.2014). The assessment for A.Y. 2014-15 was completed under scrutiny, verifying the books of accounts and accepting the genuineness of the creditors and purchases. The assessee demonstrated that the outstanding creditors were opening creditors brought forward from the earlier year. The assessee also explained that the creditors could not be paid due to cash crunch resulting from the partial consideration received for the sale of the poultry complex. The full consideration was received subsequently, and the creditors were repaid.Tribunal's Decision:The Tribunal upheld the CIT(A)'s order, noting that the AO did not bring any evidence to show that the sundry creditors were introduced during the year or that cash credits were introduced. The Tribunal found that the AO accepted the books of accounts in the earlier year and the year under consideration. The sundry creditors represented expenditure incurred for purchases, and disallowance should be dealt with under section 37(1) in the year it was incurred, not in the subsequent year. The AO did not invoke any sections of the IT Act for making the addition and did not disprove the genuineness of the outstanding creditors. The Tribunal referenced similar cases where additions on account of outstanding sundry creditors were not permissible unless the AO disproved their genuineness. Consequently, the Tribunal dismissed the revenue's appeal and the assessee's cross objections as infructuous.Conclusion:The Tribunal upheld the CIT(A)'s order, dismissing the revenue's appeal and the assessee's cross objections. The addition of Rs. 1,94,31,358/- relating to sundry creditors was not warranted as the AO failed to disprove their genuineness or provide tangible evidence. The sundry creditors were established as genuine in the earlier year's scrutiny assessment, and the assessee's explanation for the outstanding creditors was accepted.